I'm not kidding, this is what he criticized Senator Bernie Sanders for in a Vox piece today. He apparently views it as outrageous that Sanders, a candidate for the Democratic presidential nomination, doesn't think that the United States should open its borders so that every person who in the world who wants to come and work in the United States has the opportunity to do so.
On the one hand Matthews has a point, there is an injustice in that people who were born in the United States are able to enjoy a better and longer life than people who had the misfortune to be born in a poor country in Africa, Asia, or elsewhere in the developing world. On the other hand, it is hard to see that as a greater injustice than saying that people who were born in wealthy and educated families in the United States, that could give their children the wealth and social training to enjoy a high living standard, have a right to a better standard of living than children who were born to less privileged families. Of course these children of privileged families will benefit from having more less-educated immigrants in the country since it will mean they have to pay less for their nannies and to have their lawn mowed and their house cleaned.
This problem can be solved much more easily than worldwide inequality. For example, let's eliminate the patent and copyright monopolies that redistribute so much income upward to these privileged children. Let's alter the licensing restrictions that ensure doctors and lawyers get outlandish pay. (We can use a lot more immigrants in these areas and the gains are large enough to have repatriations of a portion so that the home countries of these foreigners benefit as well.) And we can have the Fed not raise interest rates to keep the less privileged children from getting jobs.
Anyhow, we all have to decide for ourselves which injustices we find most worth fighting.
In a Wonkblog post, Ana Swanson complained that people are not sufficiently worried about the wealth gap by age. This should rate high on the list of items for people not to worry about. The basic reason is simple, for most people wealth is not a very good measure of their well-being and furthermore, the meaning of "wealth" has changed substantially over time.
If that sounds strange, let me make it simpler. If we go back thirty years, most middle income retirees could count on getting a substantial amount of retirement income from a defined benefit pension. Today that is much less likely to be the case. This means that to maintain the same standard of living in retirement, someone reaching retirement age would need much more wealth today than was true thirty years ago. They are also likely to need considerably more money, relative to their income, to cover health care costs since Medicare covers a much smaller share of health care costs today than it did thirty years ago. For this reason, the sort of comparison of the wealth of retirees or near retirees shown in the figures in this blog are not very useful for showing trends in wealth through time.
There is a similar story for young people. Young people never had much wealth so whether a 30-year-old has 40 percent more or less of a net worth of $8,000 is not going to mean much for their life's prospects. Furthermore, measured wealth may actually be inversely related to a young person's economic prospects. While someone who accrued $30,000 in student loan debt getting a degree (or possibly not getting a degree) from Corinthian College is in bad shape, a person who ran up $150,000 in debt getting a Harvard MBA is likely to do just fine.
For these reasons, the wealth of young people is not a very useful measure. We can look at their income and see how that has changed over time. That does not look good for high school grads, nor even people with a college degree. This should provide a serious basis for concern about the economic well-being of the young, much more so than their lack of wealth.
Paul Krugman rightly mocks Jeb Bush for taking credit for the strong growth in Florida during his tenure as governor. As Krugman points out, the reason for the strong growth was that Florida had one of the worst housing bubbles in the country. Its collapse gave Florida one of the worst downturns in the country. (I had made the same point a couple weeks earlier to a reporter fact-checking Bush's claim on growth.) The weak banking regulation that facilitated the bubble is not the sort of thing you would think the Bush campaign wants to boast about.
But it is not just Governor Bush who is prone to boasting about bubble driven growth. The boom in the last four years of the Clinton presidency was largely driven by the stock bubble that developed in these years, with price to earning ratio rising to levels not seen since the 1920s. The collapse of this bubble gave us the recession in 2001. While this downturn was very mild if measured by GDP, from the standpoint of the labor market it was quite severe. We did not get back the jobs lost in the downturn until January of 2005. Until the more recent recession this was the longest period without job growth since the Great Depression.
The interesting lesson from the 1990s boom was that the economy could sustain much lower rates of unemployment than had been previously believed. The unemployment rate hit 4.0 percent as a year-round average in 2000, most economists had previously argued that the unemployment rate could not fall much below 6.0 percent without causing spiraling inflation. This indicated that as a supply side matter, the economy could support the high levels of employment/low levels of unemployment of the late 1990s.
However, the problem is the demand side. The channels to create the demand needed to get to low rates of unemployment — either larger budget deficits or lower trade deficits caused by a lower valued dollar — are blocked politically. (We could also look to reduce work hours through work-sharing, more vacation, paid family leave, etc.) This means that we may not see a strong labor market, like the one of the late 1990s, for some time.
But the key point here is that both parties are happy to take credit for bubble driven growth. Maybe there can be a quid pro quo where Jeb Bush will stop taking credit for the growth generated by the Florida housing bubble and the Democrats stop taken credit for the bubble driven growth of the Clinton years.
Actually, after running many near hysterical pieces on the horrors of the Social Security disability program, yesterday's editorial was reasonably moderate. Nonetheless, it concludes by telling readers:
"Though hardly the sole, or leading, cause of declining labor-force participation in the United States, SSDI is nevertheless a factor. Reforming it could raise the economy’s potential growth, as well as millions of people’s life prospects. The pending crisis creates an opportunity for bipartisan compromise, in which Congress diverts more money to SSDI — linked to structural changes. The last tax reallocation, 20 years ago, 'was intended to create the time and opportunity for such reforms,' as the Social Security trustees’ report puts it; it would seem that the time, and the opportunity, are finally here."
There are a couple of points worth making here. First, the reason that the program is projected to face a shortfall next year, rather than a decade from now, is due to the fact that we had incompetent people at the Fed and Treasury who were not able to recognize a $8 trillion housing bubble and that its collapse would do serious damage to the economy. If they had recognized this fact, they would have taken steps to stem its growth before it posed such a danger to the economy. If we had stayed on the pre-recession growth path, the program would be fully funded through 2025.
The other obvious problem with the Post's position is that it implies that the Disability program is too generous. In fact, the United States ranks near the bottom among wealthy countries in the share of GDP that goes to disability insurance.
There is a point that the program could be better structured to make it easier for people on disability to re-enter the labor market. Some steps have already been taken along these lines in recent years, but undoubtedly more can be done.
Note: The link to Eurostat data on spending on disability insurance as a share of GDP was broken. I replaced it with an link to OECD data, which is to a broader category (would include SSI), but should give the general story.
Clive Crooks apparently thought he stumbled on some new revelation when he read a piece by Robert Lawrence at the Peterson Institute for International Economics. Lawrence showed that we look at the pattern in average wages, and use a net measure of productivity (rather than gross), and a common deflator for adjusted wages and output, real wages kept pace with productivity growth, at least until the Great Recession.
I suppose Lawrence deserves some sort of congratulations, it took him less than a decade to replicate our work. Of course progressive economists had long known that the story of wage stagnation was overwhelmingly a story of redistribution among workers, from factory workers and retail clerks, to doctors, bankers, and CEOs. For this reason, the fact that average compensation had kept pace with productivity was hardly news to any of us, but I suppose the fact that Robert Lawrence and his centrist colleagues are now discovering this fact may qualify as news.
Apparently the NYT believes it does. A lengthy article on the growth of Chinese foreign investment told readers:
"But the show of financial strength [foreign investment by China] also makes China — and the world — more vulnerable. Long an engine of global growth, China is taking on new risks by exposing itself to shaky political regimes, volatile emerging markets and other economic forces beyond its control.
"Any major problems could weigh on China’s growth, particularly at a time when it is already slowing."
Usually investing in other countries is thought to both increase returns to the country doing the investment and diversify risks, since it is unlikely that foreign countries will be subject to the same problems that may be hitting China (or the U.S.) at the same time. It is interesting that the NYT seems to hold the opposite perspective.
The piece seems to imply that China is unusual in the demands it makes on the countries in which it invests:
"China is forcing countries to play by its financial rules, which can be onerous. Many developing countries, in exchange for loans, pay steep interest rates and give up the rights to their natural resources for years. China has a lock on close to 90 percent of Ecuador’s oil exports, which mostly goes to paying off its loans."
The United States took the lead in establishing the International Monetary Fund, which often acts as its agent in disputes. For example, in the East Asian financial crisis the I.M.F. imposed very detailed programs on the countries of the region, which set tax and spending schedules, changed regulations throughout the economy, and required the privatization of various industries. The conditions placed by China on the countries in which it invests may be different, but there are not without precedent.
The piece also bizarrely implies that labor abuses by U.S. companies or their contractors is a thing of the past, telling readers:
"Chinese mining and manufacturing operations, like many American and European companies in previous decades, have been accused of abusing workers overseas."
Of course there are many places in the world, most notably Bangladesh and Cambodia, where there are regular reports of workers, often children, working long hours in dangerous conditions to make goods under contract with U.S. corporations. Sometimes these workers are held against their will and have their pay stolen by their employers. This is an ongoing problem, not a historical concern.
In discussing the new Chinese infrastructure bank the piece tells readers:
"Washington is worried that China will create its own rules, with lower expectations for transparency, governance and the environment."
It would be helpful to know who in Washington says they are worried about these issues. Presumably all of Washington does not have these concerns. Also, just because politicians say these are their concerns, it doesn't mean they are their actual concerns. For example, it may just be possible they fear competition from a Chinese investment bank.
Thanks to Keane Bhatt for calling this piece to my attention.
Note: I edited this to make it clear that the labor abuses in Cambodia and Bangladesh are occuring at factories that produce items for U.S. corporations.
That's the assertion at the end of Robert Samuelson's piece on the 50th anniversary of the creation of Medicare and Medicaid. Samuelson tells readers:
"By 2030, the number of Medicare beneficiaries is projected to reach 81 million, an almost 50 percent increase from today. Meanwhile, higher health spending has squeezed other programs. That’s an ironic footnote for the triumph of ’65: By threatening the rest of government, the instruments of a liberal agenda — Medicare and Medicaid — have bred illiberal consequences."
In fact, the federal government spends considerably more, as a share of GDP, on education than it did before Medicare and Medicaid were created. There have also been expansions of spending in other areas, most notably the insurance subsidies in the Affordable Care Act. It is not clear that we would be spending more money in other areas if we did not have Medicare and Medicaid. It is possible that the success of these programs make the public willing to support spending in other areas.
Robert's comment reminds me of the obvious point that I should have included originally. Because seniors have most of their health care costs covered by Medicare, they have more money to pay for other things, like taxes for other government services. Samuelson is effectively arguing that if people had their taxes reduced by the amount they pay for Medicare and Medicaid, but had their health care costs increase by an even larger amount (Medicare is far more efficient than the private health care system) then they would be willing to pay more in taxes for other services. There is no reason to believe this is true.
A New York Times article may have misled readers by implying that a state or local government with inadequate pension funds is relieved of its pension liabilities. In the context of a court ruling on the constitutionality of a plan negotiated between the city of Chicago and most of its unions, the article told readers:
"An insolvent system would be able to pay retirees only about 30 percent of their benefits. The cuts before the court were less drastic, and in combination with other changes, were supposed to leave the workers and retirees better off."
Actually the city is still legally obligated to make the full payment for workers' pensions even if the funds are depleted. In this case the payment would have to come directly from current revenue or the sale of assets. Workers may in fact be better off with a reduced pension in the sense that they would care about the city's ability to pay current workers, in addition to retirees, and also its ability to provide necessary services, however it is wrong to imply that the insolvency of the pension funds would end the city's obligations to retired workers.
The Washington Post reported on a speech by former Secretary of State Hillary Clinton in which she decried corporate America's short-term focus and called on companies to invest in their workers. She did not indicate any specific proposals for bringing this about. In an earlier speech she had suggested tax incentives to promote profit sharing.
It actually is not hard to give companies more incentive to invest in their workers, we can just make it harder for them to fire them. According to the OECD the United States has by far the weakest employment protection legislation, meaning that it is extremely easy to fire workers. The United States is the only country in which even long-term workers can be fired immediately for no reason and with no compensation.
Laws that imposed some cost for firing long-term workers would give companies more incentive to invest in workers and ensure that their productivity continues to rise. This is a very simple and well-established mechanism that is likely to be far more direct than any tax scheme that Ms. Clinton might put forward.
While she has not put out any specifics of her plan to promote profit sharing, it is worth noting that Carter administration tax incentive to promote employee ownership has largely been used as a tax break for creative owners. For example, when Sam Zell bought up the Tribune Company in 2007 he used the money in the workers' pensions to create an employee stock ownership plan, which provided much of the money for the purchase. While this did nothing to give workers any effective control of the company, it potentially provided enormous tax advantages to Zell. (Since the company lost money, he turned out not to need the tax break.)
Bloomberg got into the act today with a quote from a Chinese economist telling readers:
"'A lot of entrepreneurs probably have invested in the stock market and now they have seen a significant loss,' Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a Bloomberg Television interview. 'As a result business confidence has lowered. In the past, sentiment tends to have a lot of impact on this survey.'"
The problem with story for arithmetic fans everywhere is that people only lost money on what they have invested since April. The Shanghai stock market is still up by more than 25 percent since the start of the year and nearly double its year ago level. In other words, not many people could be on net losers in this story, even if they are not quite as rich as they hoped to be.
This NYT article on various state bills calling for drug companies to reveal their spending on research for high-priced drugs might have been a good place to mention that we have alternatives to patent financing for prescription drug research. For example, the federal government already spends more than $30 billion a year on research through the National Institutes of Health. If this sum were doubled or tripled, it could likely replace the patent supported research now being done by the drug industry.
And, since the research was all paid for upfront, the great new drugs developed for cancer, AIDS, and other diseases could all be sold as generics. Then we would not face tough decisions about whether to pay for expensive drugs for people who need them. We also would have eliminated the incentive for drug companies to mislead the public about the safety and effectiveness of their drugs.
The NYT gave us a bit of the old "he said, she said" in an article reporting on the Obama administration's latest push for reauthorizing the Export-Import Bank. It told readers:
"While opponents contend that most of the bank’s money benefits corporate giants like Boeing, General Electric and Caterpillar, the small-business owners invited to the White House underscored supporters’ counterargument that most of the bank’s beneficiaries are smaller companies. Mr. Obama’s guests included the owners of Love & Quiches Gourmet in New York, Ferra Coffee in Texas and Bob’s Red Mill in Oregon."
Of course the opponents are right. The largest beneficiaries include companies like Boeing, Caterpillar and other huge companies. In a typical year the fifteen largest beneficiaries will get more than 85 percent of the bank's loans or guarantees and often more than 95 percent.
If President Obama and other supporters of the bank were actually concerned about the smaller companies who are the bulk of the bank's beneficiaries it could presumably propose that the bank be reauthorized with a cap of something like $10-20 million on loans per beneficiary. This would ensure that the small companies who were President Obama's guests could still get their loans, without giving taxpayer handouts to some of the country's biggest companies.
The article concludes by telling readers:
"'The Export-Import Bank makes money for the U.S. government,' Mr. Obama said, referring to the loan repayments and proceeds from borrowers. 'This is not a situation in which taxpayers are subsidizing these companies.'
In a fully employed economy (i.e. one in which the Federal Reserve Board is raising interest rates to slow the pace of job creation and economic growth) a below market interest rate loan that is issued or guaranteed by the Export-Import Bank is pulling capital away from other uses. This means that companies not favored by the Export-Import Bank will pay higher interest rates on their loans because of the loans supported by the Export-Import Bank. This is in effect a tax on other borrowers to support the companies getting loans from the Export-Import Bank.
Every economist in the Obama administration knows this to be true. It would have been helpful to point this fact out to readers who might otherwise believe that the Export-Import Bank has free money as President Obama appears to be claiming.
You've got to admire those Silicon Valley boys, they hire one of President Obama's top political advisers as a lobbyist, put out misleading studies on drivers' pay, and now they are trying to get their drivers to lobby to reduce their own pay.
The context for the latter was their urging of their "partners" to come to a rally against New York Mayor Bill de Blasio's decision to freeze the number of new cars for hire that Uber and other Internet based companies can put on the city's streets. De Blasio was ostensibly putting in place this freeze to reduce congestion.
Whether or not the freeze is justified, one thing that is straightforward is that it would act to protect the earnings of existing Uber drivers in the same way that it would protect the earnings of the incumbent taxi industry. With fewer taxis on the road, there will be more passengers for each driver. This is likely to make an especially large difference for Uber drivers since its surge pricing model will lead to automatic fare increases when cars are in short supply.
This means that Uber was effectively asking these drivers to demand that the city cut their pay. I guess we'll see if it works, maybe it really is a new economy.
This one needs a really big "oy." The lead headline of the Huffington Post tells readers that "child poverty higher now than great recession." This is based on an AP story headlined "more U.S. children are living in poverty than during the great recession." This article is in turn based on the annual Kids Count Data Book that is produced by the Annie E. Casey Foundation.
It turns out that this is not quite the story as the second paragraph of the article indicates:
"Twenty-two percent of American children were living in poverty in 2013 compared with 18 percent in 2008, according to the latest Kids Count Data Book, with poverty rates nearly double among African-Americans and American Indians and problems most severe in South and Southwest."
Note the comparison is with 2008, the beginning of the recession, not the trough of the recession in 2010. By any measure the recovery from this recession has been slow and weak. (It is hard to recover from recessions caused by bursting asset bubbles.)
Almost eight years after its onset we would still need another three million jobs to restore the prime age employment rate to its pre-crisis level. And median wages are still below their pre-crisis level. But the child poverty rate is at least moving in the right direction in the recovery, even if way too slowly. And even the pre-recession level was ridiculously high. Anyhow, the real story is bad enough, it's not necessary to exaggerate.
Those folks at the Wall Street Journal are really turning reality on its head. Today it ran a column by Robert Ingram, a former CEO of Glaxo Wellcome, complaining about efforts to pass "transparency" legislation in Massachusetts, New York, and a number of other states. This legislation would require drug companies to report their profits on certain expensive drugs as well as government funding that contributed to their development.
Ingram sees such laws as a prelude to price controls. He then warns readers:
"There is no surer way to bring pharmaceutical innovation to a halt in the U.S. than letting governments decide how much companies can charge for their products or harassing them into lower prices. It also represents a fundamental misunderstanding of how pharmaceutical research works. Scientific discoveries involve trying and failing, learning from those failures and trying again and again, often for years."
Ingram bizarrely touts the "flowing pipeline of new wonder drugs spurred by a free market," which he warns will be stopped by "government price controls." This juxtaposition is bizarre, because patent monopolies are 180 degrees at odds with the free market. These monopolies are a government policy to provide incentives for innovation. Mr. Ingram obviously likes this policy, but that doesn't make it the free market.
Of course there are other ways that the government can finance research and development, such as paying for it directly. It already does this to a large extent. At the encouragement of the pharmaceutical industry it spends more than $30 billion a year on mostly basic research conducted through the National Institutes of Health. It could double or triple the amount of direct funding (which could be contracted with private firms like Glaxo Wellcome) with the condition that all findings are placed in the public domain.
This would eliminate all the distortions associated with patent monopolies, such as patent-protected prices that are can be more than one hundred times as much as the free market price. This would eliminate all the ethical dilemmas about whether the government or private insurers should pay for expensive drugs like Sovaldi, since the drugs would be cheap. It would also eliminate the incentive to mislead doctors and the public about the safety and effectiveness of drugs in order to benefit from monopoly profits.
It would be great to have an honest debate about the best way to finance drug research. The first step is to stop conflating government granted patent monopolies with the free market.
One important point that Ingram gets wrong in this piece is his claim that, "Prescription drugs account for only about 10% of U.S. health-care spending, according to the Centers for Disease Control and Prevention. This percentage has not changed since 1960 and is projected to remain the same for the next decade."
While spending on drugs is roughly the same share of health care spending as it was in 1960, this is a sharp recovery from the level of the early 1980s, when it was close to 5 percent. Furthermore, spending on pharmaceuticals rose by more than 10.0 percent in 2014, which means that currently they are growing rapidly as a share of total health care spending.
That is the conclusion that readers might draw from a piece by Neil Irwin in which he interviews Alexander Stubb, the Finnish finance minister, on the merits of the euro for Finland. Finland is often cited by euro critics because its economy is mired in recession even though, unlike Greece, it has always maintained low budget deficits and its government is not corrupt and highly efficient. The problem cited by critics (including me) is that the being in the euro prevent Finland from devaluing its currency to regain competitiveness.
Stubb dismisses the current weakness as a rough patch:
"You have to look at a longer time horizon. In his telling, the integration with Western Europe — of which the euro currency is a crucial element — deepened trade and diplomatic relations, making Finland both more powerful on the world stage and its industries better connected to the rest of the global economy. That made its people richer.
"'In the early 1990s in the middle of a Finnish banking crisis and economic depression, we were a top 30 country in the world in per capita G.D.P.,' he said. 'Then we opened up; we became members of the E.U. Now we’re always up there in G.D.P. per capita or whatever other measure you look at with Sweden, Denmark, Australia and Canada.'"
Actually, if we look at a slightly longer time horizon, we would find that Finland was actually very close in per capita income to Sweden, Germany, and other rich countries in the 1980s before the collapse of the Soviet Union in the early 1990s.
Source: International Monetary Fund.
Before the collapse of the Soviet Union, Finland's per capita GDP was roughly 95 percent of the levels in Germany and Sweden. It fell sharply in the early 1990s but was already regaining ground rapidly by the mid-1990s, before the establishment of the euro. Since the recession Finland's per capita GDP has fallen relative to both countries. It is now lower relative to Sweden, which is not in the euro, than it was at any point in the nineties, following the collapse of the Soviet Union.
Note: An earlier verison had a graph without years on the axis, as several comments notes, this has been corrected.
Uber is once again dipping its toe into the world of innovative social science. Folks may recall that earlier this year it commissioned Alan Krueger, one of the country’s leading labor economists and formerly President Obama’s chief economist, to do an analysis of Uber drivers’ pay. While Uber shared data with Kreuger on drivers’ gross receipts, it did not share data on miles driven. This meant that Krueger was left comparing the gross receipts of its drivers with the net income of cab drivers in the incumbent taxi industry. The gross receipts do not deduct costs borne by the driver, such as gas, depreciation on the car, and insurance.
Not surprisingly, the gross receipts of Uber drivers were higher than the net income of drivers for the incumbent tax industry. It’s not clear if this comparison would hold up if Krueger had done an apples to apples comparison where he deducted expenses for Uber drivers, but he couldn’t do this, since Uber didn’t give him the miles data.
In keeping with this approach to social science Uber has commissioned a new study that purports to show that it provides better service to minorities than the incumbent taxi industry. The test was to have someone order an Uber car in a heavily minority community on their smartphone, and compare the time it takes to get their pickup with the time it takes someone calling for a taxi from an incumbent company. Uber found that its service was markedly faster than the service of the incumbent industry.
Before anyone celebrates over this finding that Uber has eliminated or at least reduced discrimination in taxi service, a bit of thinking is required. To order an Uber car it is necessary to have both a smart phone and a credit card. A substantial portion of the low income and minority populations lack one or the other.
The Uber study effectively asked the question of whether Uber provides better service to a screened portion of the minority community, using a screening mechanism that is likely to weed out the poorer portion of this community. Furthermore, Uber knew of this screening, since it is how their cars are summoned. The incumbent taxi companies in its study did not know of the screening.
If we think that discrimination against minorities is a mixture of race, ethnicity, and class, the Uber study effectively used a screening mechanism that largely eliminated the class aspect of the matter, at least for the Uber drivers. In this context, the result is not very surprising.
CEPR is proposing that Uber finance a study where we compare the amount of time it takes people in minority communities to get an Uber car or a taxi ordered from an incumbent service, where the passenger does not have a credit card and orders over the phone. It will be interesting to see what we find.
"You need to rebalance, but competent policymakers can balance the economy up, near full employment, rather than balancing the economy down. And from late 2005 to the end of 2007 the balancing-up process was put in motion and, in fact, 3/4 accomplished.
"There is no reason why moving three million workers from pounding nails in Nevada and support occupations to making exports, building infrastructure, and serving as home-health aides and barefoot doctors needs to be associated with a lost decade and, apparently, permanently reduced employment. A lower value of the currency can boost exports. Loan guarantees and burden-sharing can get state governments into the infrastructure business. A surtax on the rich can employ a lot of home health aides and barefoot doctors. If these roads were foreclosed, they were foreclosed by the laws of American politics, not the laws of economics.
"And the lack of successful and rapid rebalancing–the weak post-2001 recovery–was also, overwhelmingly, a matter of choice: to use tax cuts rather than infrastructure and other social capital-building forms of spending on the government side, and to direct the dollar earnings of foreigners selling us imports into funding house construction rather than buying exports on the private-spending side."
I would agree with this mostly, but say that it misses the point. (I disagree on the 3/4 accomplished part in the first paragraph, but that is secondary.) We do not have a political environment in which we can run deficits of the size needed to correct large imbalances, nor can we address chronic trade deficits by getting the dollar down. For this reason, bubbles are really bad news because when (not if) they burst we lack the ability to address the resulting shortfall in demand.
This is really simply stuff and that is a big problem in dealing with it. Economists want things to be difficult as do the liberal billionaires who fund economic research and policy analysis. Rather than trying to figure out a way to try to make it clear that we have to get the government to spend money or to drive down the value of the dollar, we will see tens of millions spent on developing new economic theory. Oh well, at least it will help to stimulate the economy.
That's what millions of readers are asking after reading a NYT article on the fallout from Germany's hardline in negotiations with Greece over its debt. The piece noted the lukewarm support given to Greece from France and Italy. It told readers:
"France and Italy struggle with some of the same problems as Greece: low growth, youth unemployment, rigid labor markets, bloated state bureaucracies and social welfare systems too generous now, when people live longer, to be supported by current revenue."
It's hard to see the basis for this assertion. According to the I.M.F., France has a structural budget deficit of 2.0 percent of GDP, Italy's structural deficit is just 0.3 percent of GDP. Deficits of this size could be sustained indefinitely.
Both countries are running larger actual deficits at present because their economies are operating below full employment, even by the I.M.F.'s measure. (This measure is based on averaging recent output levels, so that a prolonged downturn will imply a lower level of potential output.) This suggests that the main source of budget problems for France and Italy is the contractionary fiscal policies being imposed on the euro zone by Germany and the European Central Bank, not excessive welfare state spending.
The Washington Post had a major piece describing what it called a "global competition" by oil producers to stay in business even as prices remain low. The piece seems to imply that the strategy of Saudi Arabia in this competition is to pump enough oil to keep prices low, thereby driving out competitors. They would then raise their prices once the competition is gone.
This strategy does not make sense. A prolonged period of low prices may push some of their competitors into bankruptcy, like Continental Resources, the fracking company at the center of the piece, but the oil would still be there. This means that if prices rose enough to make shale oil profitable again, then new competitors will buy up the land and the equipment of the bankrupt companies and start producing oil again. While this process will take some time, it is at most a matter of a couple of years and quite possibly considerably less.
Given the current situation in the oil market, Saudi Arabia can likely have a large market share or can have high prices. There is not a plausible scenario in which it can have both.
Just after announcing his candidacy for the Republican presidential nomination Scott Walker denounced the left for not having any real ideas for workers. According to Walker:
"They've just got really lame ideas, things like the minimum wage. Instead of focusing on that, we need to talk about how we give people the skills and the education, the qualifications they need to take on careers that pay far more than minimum wage."
In his Washington Post "The Fix" column, Philip Bump largely endorsed this perspective.
"If the purpose the minimum wage is meant to serve is to lift people out of poverty, Pew points out that Walker's right: Most minimum wages aren't high enough to do that. The minimum wage is indeed lame, in the sense that it's relatively impotent. Earning a minimum wage in 2014 was enough for a single person not to live in poverty, but not anyone with a family -- and not everywhere across the country."
There are a few points worth noting here. First, "the left" has many ideas for helping workers other than just the minimum wage. For example, many on the left have pushed for a full employment policy, which would mean having a Federal Reserve Board policy that allows the unemployment rate to continue to fall until there is clear evidence of inflation rather than preemptively raising interest rates to slow growth. It would also mean having trade policies designed to reduce the trade deficit (i.e. a lower valued dollar) which would provide a strong boost to jobs. It would also mean spending on infrastructure and education, which would also help to create jobs and have long-term growth benefits.
The left also favors policies that allow workers who want to be represented by unions to organize. This has a well known impact on wages, especially for less educated workers.
As far the denunciation of the minimum wage as "lame," this is a policy that could put thousands of dollars a year into the pockets of low wage workers. For arithmetic fans, a three dollar an hour increase in the minimum wage would mean $6,000 a year for a full year worker. Since Bump seems to prefer per household measures to per worker measures, if a household has two workers earning near the minimum wage for a total of 3000 hours a year, a three dollar increase would imply $9,000 in additional income. It's unlikely these people would think of the minimum wage as lame.
The last point is that Bump apparently doesn't realize that Walker's focus on skills and education are not new and are also shared by the left. The left has long led the way in pushing for public support for improved education. Even now, President Obama has put proposals forward for universal pre-K education and reducing the cost of college. Unions have not only supported education in the public sector, they routinely require training and upskilling of workers in their contracts.
If Walker has some new ideas on skills and education, then it would be worth hearing them, but Bump gives no indication that Walker did anything other than say the words as a way to denounce the left. In short, if Bump had more knowledge about history and current politics he would not join Walker in his name calling.
It is worth noting that as governor of Wisconsin, Walker has targeted unions, trying to weaken them in both the public and private sectors. He has also attacked the University of Wisconsin, one of the top public unversities in the country. Insofar as he is committed to a path of upward mobility for workers, these actions go in the opposite direction.